How Badly Has Congress Screwed Up Ethanol?

And Who Will Bear the Cost?

Two years ago the Democrats in Congress and the Bush administration got together to deliver a payoff to farmers: they required refiners to use 15 billion gallons of biofuels by 2012. They did not expect that a crashing recession would lead to a reduction in the amount of gasoline the nation consumes – the first such reduction in years. And they also didn’t expect a White House to push so aggressively for higher-mileage vehicle fleets.

As a result of the changed circumstance, it looks like it will be impossible for Americans to use that much ethanol. Something has to give. But what?

Each potential solution would anger one interest group or another, so the agency has been subjected to fierce lobbying, including from members of Congress lining up behind various factions. One possibility is to raise the maximum proportion of ethanol in gasoline to 15 or 20 percent.

But that idea is opposed by some carmakers and pollution experts. They contend that high ethanol blends can cause damage to cars, including making catalytic converters run hotter.

The Alliance of Automobile Manufacturers says it believes this could cause the converters, components that help control pollution, to fail at around 50,000 miles. They are supposed to last for 120,000 to 150,000 miles. “We are sensitive to the issues facing the ethanol industry, but the government must make decisions based on sound science,” said Dave McCurdy, president and chief executive of the alliance, in a letter to the E.P.A.

Another possibility is that the agency could waive the mandates requiring use of a large volume of biofuels. But that would anger farmers, who sell a great deal of corn to ethanol factories, and the members of Congress who represent them. It might also undermine the efforts of companies that are investing millions in factories to make ethanol from waste materials, like corncobs, straw and garbage.

Had Congress trusted to the market to determine what fuels American cars use – and in what quantities – they would not now find themselves on the horns of a dilemma. Instead, they seem likely to force many Americans to pay for new catalytic converters, or to force more American farmers into bankruptcy. Given the instincts of the Obama administration, the White House response is sure to involve raining more taxpayer money on someone.
What happens with biofuels in the longer run seems likely to depend on how much control Washington exerts over the car market. The Times seems to suggest the best approach might simply be to force all of us to buy more expensive, less efficient fuel:

Perhaps the easiest way for the country to absorb all the excess ethanol would be to make wider use of an ethanol blend called E85, which contains 85 percent ethanol and 15 percent gasoline. Most cars on the road cannot use it, but in recent years, millions of “flex-fuel” cars have been sold, especially by General Motors. (Any car with a yellow gasoline cap can use E85.)

The problem is that at current prices, E85 does not make economic sense for drivers, and most of them use regular gasoline in their flex-fuel cars. That means gasoline stations have little incentive to install pumps for E85. The fuel can be found in the Corn Belt but is not readily available elsewhere in the country.

Gasoline was selling on average Thursday for $2.63 a gallon, while E85 was selling for $2.23 a gallon. That might make E85 sound like a bargain, but cars go fewer miles on a gallon of ethanol than of gasoline. Adjusted for that factor, E85 on Thursday was effectively 31 cents a gallon more expensive than gasoline.

A return of $4 gasoline might change things, by making E85 a relative bargain and spurring wider use. So would an unexpected spurt in total fuel demand. Otherwise, it is not at all clear how the nation’s coming surplus of ethanol can be absorbed.

As the first part of the article reminds us, the ‘surplus of ethanol’ that worries the Times didn’t happen by itself. It was engineered in Washington. The simplest solution would be to get Washington out of the car business – not just ownership, but also the heavy regulation of cars. If farmers were not induced to produce biofuels, it might help reverse the climb in food prices.
And besides, it’s becoming plainer and plainer that global warming isn’t a problem.
Cross-posted to TheConservatives.com
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